Financial services giant Charles Schwab, which manages over $12 trillion in client assets, has published a formal research report providing structured guidance for investors on allocating to cryptocurrencies like Bitcoin and Ethereum. The firm's white paper, authored by Jim Ferraioli, director of digital currencies research at the Schwab Center for Financial Research, outlines that there is no single "correct" allocation, but that it depends on an investor's individual goals, risk tolerance, and outlook.
The report details two primary frameworks for crypto allocation. The first is a return-based approach, which factors in expected returns, volatility, and correlation with traditional assets. Under this model, if an investor expects Bitcoin to return 15% annually, a conservative portfolio might hold around 1%, a moderate portfolio 6.6%, and an aggressive portfolio 8.8%. For the more volatile Ethereum, allocations are smaller: conservative (0.1%), moderate (2%), and aggressive (2.5%). Schwab notes that if expected returns fall below 10%, neither asset may justify any allocation.
The second is a risk-based approach, which focuses on how much of a portfolio's total risk stems from crypto. The analysis reveals that even a 1.2% Bitcoin allocation can represent 10% of the total risk in a conservative portfolio. Schwab highlights Bitcoin's annualized volatility of around 72% with drawdowns over 70%, and Ethereum's even higher volatility of nearly 98% with drawdowns close to 88%. The firm stresses that digital assets remain speculative satellite holdings, carrying unique liquidity, custody, and fraud risks not present in traditional assets.
Concurrently, Schwab is moving into direct crypto trading with the launch of "Schwab Crypto," a new account type currently on a waitlist. Developed under Charles Schwab Premier Bank and pending regulatory approval, this platform will allow clients to buy and sell Bitcoin and Ethereum directly, positioning Schwab in more direct competition with platforms like Coinbase and Robinhood.
